@roberts: Thanks, I was not suggesting for this to be a real issue.
@Sandras: I guess your are correct the code for 'checkfs' boot code seemed to be "gone". I had a look through my archived files and I found it last in TC 2.3.1
Regarding your other problem I'm not quite sure what your are trying to achieve, so I attempted something myself to see if I could find anything "outrageously" wrong (I was using QEMU since that allows easy testing of such scenarios, but I dont' think that "real" hardware will behave differently):
(1) First boot from CD-ROM with an freshly formatted hard disk, using boot code 'tce=hda1' to create the required directories. I've installed a small number of extensions and took a "snapshot" of '/usr/local'. This showed all the expected links from '/usr/local/...' into '/tmp/tcloop/...'. Then created the "flag" with touch /mnt/hda1/tce/copy2fs.flg
(2) Next boot from CD-ROM with the prepared hard disk (but not using any boot code). Due to the 'copy2fs.flg' no files were present in '/tmp/tcloop' but all were extracted into the (in-memory) root file system -> exactly as expected.
(3) This time the system got booted with the boot code of 'local=hda1'. The booting took a bit longer and the hard disk got "busy". There was an additional (and entirely expected) mount of '/usr/local' from '/dev/hda1' to be found (binding '/mnt/hda1/tclocal' to '/usr/local'). By now the files had been extracted from the *.tcz files into '/usr/local' (i.e. '/mnt/hda1/tclocal'). I'm not sure what that is meant to achieve, to have the squash-fs files and the extracted content on the same disk. So I assume my test is not what you had in mind. Nevertheless I believe it all worked as it should have done.
I've done a few more tests and none of them showed anything unexpected. So maybe you could describe what result you are after.